Changing job title and reporting structure

Question: If an employee's job title and reporting structure changes but his main job duties and pay does not, is that considered a significant change that could lead to constructive dismissal? What kind of advance notice must we give for significant changes to an employee's job?

Answer: In Farber v. Royal Trust Co., the Supreme Court of Canada said when an employee does not agree to unilateral changes to the terms of her employment, the employer is no longer meeting the terms of the employment contract and the employee is entitled to compensation in lieu of notice and possibly damages.

In determining whether a particular change amounts to constructive dismissal, the test is whether a reasonable person in the same situation as the employee would feel the essential terms of the contract were being substantially changed or whether the employer’s conduct created circumstances difficult for a reasonable person to persevere in the employment.

The question whether a change in the employee’s terms of employment is so significant as to amount to a repudiation of the contract must take into account both positive and negative changes. Neither the employee’s subjective perception nor the employer’s intention is relevant in determining whether there has been a constructive dismissal.

Whether a change in job title and reporting structure could amount to constructive dismissal depends on the surrounding circumstances. Such changes are generally combined with other factors when they are part of a finding of constructive dismissal. That said, such a finding could be made if changes in job title and reporting structure were to be done in a manner that was an effective demotion, undermined or removed an employee’s authority or created an objectively embarrassing work environment making continued employment intolerable.

In Poulos v. Murphy Oil Co., the Alberta Court of Queen’s Bench did not find constructive dismissal where a reorganization resulted in the employee reporting to the vice-president rather than the president, the department she managed was subsumed under the vice-president’s department and the management committee was disbanded. The employee’s pay and duties were not changed, so the court found there was no fundamental change in the employment contract.

In Colasurdo v. CTG Inc., an employee was first forced to share authority he had previously held exclusively with a newly hired individual and was subsequently required to report to that individual. The employee’s effective demotion was compounded by a failure by the employer to make good on a promised transfer, his exclusion from corporate planning processes and a failure to grant him entitlements under an employee share option plan.

In Hainsworth v. World Peace Forum Society, an employee was hired to be one of two executive directors of the society. Shortly thereafter, tensions grew between herself, her co-director and the board of directors over appropriate roles, structures and decision-making. It was proposed the employee adopt the position of “co-ordinator of operations” and she report to her former co-director. The employee resigned, claiming the new title would have reflected badly on her reputation and ability, limited her access to the board and hampered her ability to influence the direction of operations.

The British Columbia Supreme Court said that although the board of directors had genuine performance concerns and the right to rearrange the reporting hierarchy and attempt to ease the burdens on her, its actions fundamentally changed the contract of employment. The employee’s responsibilities appeared to remain the same, but she reported to her former co-worker, a change that was in fact a demotion accompanied by embarrassment and loss of prestige, particularly in the tightly knit community of social activists.

It has generally been accepted an employer can avoid liability for constructive dismissal by giving reasonable notice of the change, with reasonableness being determined by the same factors as would determine reasonable notice of an actual termination — such as years of service, age of the employee and the nature of the employment.

Recently, however, the Ontario Court of Appeal suggested an employer may not escape liability merely by giving reasonable notice of a fundamental change, at least in circumstances where the employee expressly refuses to accept the proposed change. In Wronko v. Western Inventory Service Ltd., the court held the employee’s continued and express rejection of a change in the terms of his employment contract throughout the period of notice significantly altered the employer’s rights.

The court concluded when the employer provided notice of the intended unilateral change and that change was rejected by the employee, the employer ought to have advised the employee his employment would terminate if he failed to accept the termination provision at the end of the notice period. Having failed to expressly advise that termination would be the consequence of a continuing rejection of the change, the employer accepted the terms of the original contract remained in effect after expiry of the period of notice.

The Court of Appeal noted when an employer attempts to impose a unilateral amendment to a fundamental term of a contract of employment, the affected employee may either accept the change, expressly or implicitly through apparent acquiescence, reject the change and sue for damages for constructive dismissal or make it clear the new term is rejected.

If the employee chooses the third option — as Wronko did — the employer may respond by terminating the employee with proper notice and offering re-employment on the new terms. However, if the employer permits the employee to continue to do the job, the employee can insist on adherence to the original contract terms.

An application for leave to appeal in Wronko to the Supreme Court of Canada was denied. Accordingly, the Ontario Court of Appeal’s decision must be considered in any case where an employer seeks to alter significant terms to affected employees who will be continuing in their employment.

For more information see:

•Farber c. Royal Trust Co., 1996 CarswellQue 1158 (S.C.C.).
•Alberta Permit Pro v. Booth, 2007 CarswellAlta 1260 (Alta. Q.B.).
•Poulos v. Murphy Oil Co., 1990 CarswellAlta 120 (Alta. Q.B.).
•Colasurdo v. CTG Inc., 1988 CarswellOnt 885 (Ont. H.C.).
•Hainsworth v. World Peace Forum Society, 2006 CarswellBC 1272 (B.C. S.C.).
•Wronko v. Western Inventory Service Ltd., 2008 CarswellOnt 2350 (Ont. C.A.).

Tim Mitchell is a partner with Armstrong Management Lawyers in Calgary who practices employment and labour law. He can be reached at [email protected].